GROSS INCOME

Income tax
GROSS INCOME - RESIDENT
 The total amount In cash or otherwise
Received by or accrued to or in favour of such
resident
 During the period of assessment
 Excluding receipt of a capital nature
GROSS INCOME – NON
RESIDENT
 The total amount
 In cash or otherwise
 Received by or accrued to or in favour of such person
 From a source within the republic
 During the period of assessment
 Excluding receipt of a capital nature
 WHAT IS A “RESIDENT”
“Resident”
 Any natural person
 Persons other than natural persons
“Person”
 Insolvent estate
 Trust
 Portfolio of collective investment scheme
HOW TO DETERMINE
RESIDENCY

1 2 3
Look at Double Determine if the Perform a physical
taxation agreement person is ordinarily presence test
resident in the
Republic
 ORDINARILY RESIDENT TEST
(STEP 2)
- Ordinary Resident refers to the place a
Cohen Case
person returns after their “wanderings”

A person is ordinarily resident where he has

Kuttel Case his usual place of residence, what he
describes as his “real home”
PHYSICAL PRESENCE TEST

01 02 03
Was the person Was the person Was the person
physically present in physically present in physically present in
the republic for more SA for more than 91 SA for more than 915
than 91 days in the days for each of the days In total for the
relevant year? previous 5 years? previous 5 years?
EXAMPLE: RESIDENCE
Jacob Zondo is a South African citizen who traveled to Spain on holiday for two months.
Required: Is Zondo a resident of the republic
Answer:
Step 1: Is there a DTA between SA & Spain that makes Zondo an exclusive resident of either
country?
-No

Step 2: Is Zondo ordinarily resident in SA?

Zondo is ordinarily resident in SA as he intended to return here after the holiday, this is where
he returns “after his wonderings” – Cohen Case
PHYSICAL PRESENCE TEST
Jim Jones is not ordinarily resident in South Africa. He spent the below days in South Africa on
holiday and doing business in the country.

Year Days in SA
Current 201
YOA
2023 225
2022 105
2021 150
2020 235
2019 320

Required: Perform a Physical presence test

SOLUTION: PHYSICAL
PRESENCE TEST
Step 1: Was the person physically present in the republic for more than 91 days in the
relevant year?
Yes – he spent 201 Days in SA in the current year
Step 2: Was the person physically present in SA for more than 91 days for each of the
previous 5 years?
Yes - he was PP in SA for more than 91 days in each of the previous 5 years.
Step 3: Was the person physically present in SA for more than 915 days In total for the
previous 5 years?
Yes – He was PP in SA for 1035 days in aggregate over previous 5 years
Conclusion: Jim Jones is PP in SA and will be taxed on his WW income in SA
GROSS INCOME DEFINITION
 The total amount In cash or otherwise
Received by or accrued to or in favour of such resident
 During the period of assessment
 Excluding receipt of a capital nature
THE TOTAL AMOUNT IN CASH OR
OTHERWISE
First and foremost: There must be an amount that is received or accrued

The amount can be cash – Money

“Otherwise” – Amount can be an asset

If an asset is received It needs to be valued.

The Onus is on SARS to value for an asset if taxpayer claims asset received cannot be valued (Butcher
bros case)
RECEIVED BY OR ACCRUED TO

 It is possible to receive an amount before it accrues to you (taxed

once)
 Include the amount in Gross income regardless of which happens
first
 May lead to timing differences (deferred tax)
 An amount is only included in a TP gross income if he received it
on his own behalf and his own benefit – Geldenhuys case
RECEIVED BY OR ACCRUED
TO - ILLEGAL
 Where a customer is overcharged, the
amounts is deemed to be “received”
 Stolen money and illegal receipts are
included in gross income
 To determine if an amount is income, one
does not look at the legality of the trade –
Delagoa bay cigarettes case
 Maybe able to deduct relevant expenses
(limited by S11(0))
  Amounts accrued and not yet received are
taxable
 Accrued means the amount a taxpayer has
become entitled to – Lategan Case
ACCRUED TO  An amount accrues to somebody when
they become “unconditionally entitled” to
the amount – Mooi case
 Conditional entitlement is not an accrual
until the condition Is met – Mooi Case
RECEIVED BY OR ACCRUED Pyott

TO: DEPOSIT case

Deposit Amount mixed with other

funds
• Taxed

Deposit kept in a separate trust

account et up for this purpose
• Amount is not taxed
 IN FAVOUR OF

If the amount is Money received on

Income received by received by TP for his behalf of a Principal Remember
another person on
behalf of the
own benefit but must
be it over to another
is taxed in the hands
of the Principal
S7 & 25B?
taxpayer will be person the TP is taxed
taxed in the hands of (Witwatersrand
the taxpayer association of Racing
Clubs)
CALENDAR
DURING THE YEAR
OF ASSESSMENT
An amount needs to be received or accrued in a particular YOA to
be taxed in that YOA
 CAPITAL IN NATURE
• Intentions • Manner of
Subjective factors

Objective factors

Other factors
• Change of intention aquisition • Age of TP
• Manner of disposal • Nature of Asset
• Period asset was • TP’s activities
held • Accounting
• Continuity treatment of
• Occupation of TP transaction
• No Change in • Purpose of legal
Ownership person
• Reason for receipt
• Legal nature of
transaction
• Nature of Asset
• Profit making
scheme?
CAPITAL IN NATURE
Profit making intention/Trade = Taxable
= revenue in nature

Capital intention = Not taxable

Capital in nature

We need to look at the intention of the TP

CAPITAL IN NATURE:
INTENTION
A person may realize/sell his capital asset to his best advantage (maximum
money)

The intention of the TP when they purchased the Asset is important (Stott
Case)

Did the TP change his intention from capital to revenue while holding the
asset?

if a TP changes his intention and embarks on a profit-making scheme then

they have crossed a Rubicon and the amount will be gross income (Natal
Estates case)
CAPITAL IN NATURE:
INTENTION

The taxpayer may wait for a

Once a TP acquires an The onus of establishing a good offer before selling a
asset sells it, the TP is change in intention from capital asset, this does not
trading in that asset revenue to capital is a mean they have a revenue
heavy burden intention (John bell case)
It is possible for a TP to purchase an asset with more
than one intention

Where the TP has two intentions then the dominant CAPITAL IN

intention takes precedent (if there is one)
NATURE:
MIXED
If no dominant intention then the revenue intention
prevails.
INTENTION

If TP has a dominant capital intention and a secondary

revenue intention but pursues both simultaneously then
receipts will be revenue in nature
CAPITAL IN NATURE:
INTENTION

The court will use the TP’s ipse dixit Courts place a lot of weight on the Courts will also weigh up subjective
(what the TP says). TP’s credibility factors when evaluating the taxpayer’s
Ipse Dixit
OBJECTIVE FACTORS
 Manner of acquisition
 Manner of disposal
 Period asset was held
 Continuity
 Occupation of TP
 No Change in Ownership
 Reason for receipt
 Legal nature of transaction
 Nature of Asset
 Profit making scheme?
OTHER FACTOR’S
 Age of TP
 Nature of Asset
 TP’s activities
 Accounting treatment of transaction
 Purpose of legal person
OTHER TRANSACTIONS
 Compensation or damages

-Which hole is the compensation filling?

-if compensation is to fill a hole in income then its revenue in nature, if it fills a hole Fin assets/capital then it is
capital in nature (Fourie Bellegings case)
 Gambling

-Where a person makes a livelihood from gambling, their gambling income would be revenue in nature

 Gifts and inheritances

-These are fortuitous in nature and do not form part of any business activities and would be capital in nature

 Kruger rands and asset sterilisation – Read through